Long-term Effects of Shapella Upgrade: Yield, Competition, and LSD-Fi

Effects of Shapella Upgrade: Yield, Competition, and LSD-Fi over time.

Researcher Lawrence Lee from Mint Ventures explains the possible changes in ETH staking returns in the future and discusses the competitive landscape of the staking industry, as well as the potential impact of LSDfi on the ETH staking ecosystem.

After the Merge, besides receiving rewards from the consensus layer, staking Ethereum can also earn rewards from the execution layer, with a total APR of 5.4%. The consensus layer reward is ETH issued by the Ethereum network, and its release increases as the total staked amount increases, but the staking APR decreases as the total staked amount increases. The execution layer reward includes two parts: 1) the priority fee, which is the part of gas paid by users that is not destroyed, and 2) MEV. The common feature of these two parts is that their profits do not increase as the total staked amount increases, which is the main variable of ETH staking rewards.

According to Lido’s statistics, after the Merge, the consensus layer APR slowly decreases as the total staked amount increases, while the execution layer APR changes greatly, averaging around 1.5%, making staking yields reach 5%. When on-chain activity is frequent, the execution layer APR can even exceed the consensus layer APR, making staking yields approach 10%. In terms of ETH staking earnings composition, taking into account the impact of MEV burn and L2, when ETH staking accounts for 30%, ETH staking rewards are likely to decrease to 3% (consensus layer reward 2.4%, execution layer reward 0.6%). This yield will have a significant impact on users’ enthusiasm for staking.

Based on the recent LSDfi craze, more and more LSD projects will go live, and what happens on unshETH, Agility, and Lybra may be played out in the next 3-6 months, with LSD continuing to generate APR far beyond that of the Ethereum chain, possibly forming a self-reinforcing flywheel effect between LSD and LSDfi. Eventually, all DeFi protocols may be referred to as LSDfi in a broader sense, as they all more or less support LSDfi. Obviously, LSD can capture the beta of LSDfi. The popularity of LSDfi will further promote the share of liquid staking in the overall staking track.

Reference: https://research.mintventures.fund/2023/06/09/the-potential-effects-of-lsd-fi-may-bring-following-the-shapella-upgrade/

We will continue to update Blocking; if you have any questions or suggestions, please contact us!


Was this article helpful?

93 out of 132 found this helpful

Discover more


Cardano's DeFi Ecosystem Flourishes Total Value Surges to Almost $450M as ADA Rockets 17% on Layer 1 Push!

This week, the total value locked (TVL) of Cardano-based tokens skyrocketed to more than $440 million, surpassing the...


Why does the US SEC, which has clearly classified more than a dozen tokens as securities, continue to avoid addressing the status of ETH?

As an intermediary for daily transactions and investment tools, L1 tokens need clear regulation, which is not only be...


Interpreting the Performance of 14 L1 Public Chains in Q1: Stacks Emerges as Dark Horse, Network Usage Rate Generally Decreases

After the running-in period, various public chains have entered the "internal competition" stage.


Analysis and Commentary: The Fate of Bitcoin ETFs and Cryptocurrency Performance

After a period of significant growth in the crypto market, traders were briefly shaken by a report causing a halt in ...


Crypto Analyst's Prediction Bitcoin to $100,000, Cardano Declared Dead

In a recent statement, Tom Dunleavy, esteemed Partner and CIO at MV Capital, provided insightful reasoning behind his...


Webster's rating is constantly changing, asserting that Cardano is far stronger than EOS

Source: Shallot blockchain Weiss Ratings, a cryptocurrency rating agency, recently said that Cardano (ADA) is far str...